Working Paper | HBS Working Paper Series | 2017

Can Paying Firms More Quickly Affect Aggregate Employment?

by Jean-Noel Barrot and Ramana Nanda

Abstract

We study the impact of Quickpay, a federal reform that indefinitely accelerated payments to small business contractors of the U.S. government. Despite treated firms being paid just 15 days sooner, we find a strong direct effect of the reform on county-sector employment growth. Importantly, however, we also document substantial crowding out of non-treated firms' employment within local labor markets. While the overall net employment effect was positive, it was close to zero in tight labor markets ― where direct effects were weaker and crowding out stronger. Our results highlight an important channel for alleviating financing constraints in small firms, but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to lower aggregate outcomes depending on labor market conditions.

Keywords: Small Business; Employment; Business and Government Relations;

Citation:

Barrot, Jean-Noel, and Ramana Nanda. "Can Paying Firms More Quickly Affect Aggregate Employment?" Harvard Business School Working Paper, No. 17-004, July 2016. (Revised January 2017.)